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April 23, 2006

Testimony Before the Florida Senate Regarding the Anachronism of the Local Video Franchise System


Witness: Tom Giovanetti
Testimony Date 04/23/2006
Body of Congress: Florida Senate
At the Request of:
Bill: SB 900

Testimony Subject:
The Anachronism of the Local Video Franchise System


Thank you, Mr. Chairman, and Members of the Committee. My name is Tom Giovanetti, and I am the president of the Institute for Policy Innovation (IPI), a 19 year-old public policy think tank based in Dallas, Texas.

I appreciate this opportunity to offer input and share what has been done in Texas and in other states as you work through making significant updates to Florida’s technology policy.

Technology is the driver
Many people look at this issue as simply one of competition between companies, and between industries. There is a temptation to think that there isn’t really an important policy issue at stake, that this is simply telecom and cable battling for market share.

While telecom and cable clearly ARE battling for market share, that isn’t what is driving the call for deregulation, and that isn’t why you should be doing video franchise reform.

It is technology that is driving this issue. Technology, and the potential for economic growth that comes from that technology. If there is a barrier to the rollout of beneficial technology, it should be removed. And the local franchise system is without a doubt a barrier to the rapid rollout of broadband technology.

An issue of economic growth
I could talk to you about the theory of deregulation. That’s the kind of thing we often do in think tanks. We could talk about the history of deregulation—about how the deregulation of communications is simply the next major deregulation, following in the wake of the deregulation of trucking, of shipping, and of airlines.

We could have an interesting conversation about broadband technology, about how bits are bits, and about how all bits should be regulated the same and not discriminated against. But I suspect that wouldn’t be the best use of my time. If you want to learn more about that, you can find that stuff on our website.

What I suspect would be most useful to you is to talk about the enormous economic opportunities that will be unleashed by eliminating the local video franchise system.

It’s a matter of survival
The traditional telecom companies are in an absolute panic to build new broadband networks and roll them out as quickly as possible. Why? Because they know it’s the only way they can survive. You see, in a digital world, there is nothing unique about delivering voice, because voice bits are just bits. Companies like Skype and Vonage are letting people make phone calls over the Internet for almost nothing. The voice business is going away as a profitable business, just as the long distance business is almost completely gone. Cable is offering voice services. The only way traditional telecom companies can survive is to start offering consumers more compelling content, such as a video product.

Getting broadband faster. The beneficiaries of this competition are consumers, because it means we’re going to get broadband faster, because of this new competition.

Because of what we did in Texas to eliminate the local video franchise system, the broadband rollout is finally happening. All over Texas people are getting new broadband networks, including fiber optics to their very homes.

And this includes communities that have been historically underserved. I live in a rural area that has never been served by cable. You still can’t get DSL in my neighborhood. Yet, finally, on the way home from church just last Sunday I saw a new sign in my neighborhood—a sign announcing that construction was beginning on the Verizon FiOS network. Imagine—my neighborhood, which never had cable or DSL, is going to get connected to a fiber optic neighborhood.

For those concerned about historically neglected communities, all I can say is that the faster you deregulate and the faster you remove the local video franchise system, the faster you’ll get your new networks.

Lower prices to consumers. In every Texas market where new video competition has entered, cable has lowered its prices. And that has only happened in markets where new video competition has entered.

You’ll hear conflicting data about how much prices have fallen, and I suspect you’ve been in office long enough to be familiar with the phenomenon of conflicting data. But what is clear is that cable prices are dropping in response to new competition. Consumers are getting lower prices AND new product offerings.

Now, this isn’t because cable is bad. I’m not anti-cable, and you shouldn’t be, either. The cable industry has invested heavily in rolling out broadband. Cable is an ally in the push for broadband, and the right kind of video franchise reform should also benefit the cable industry. The right kind of franchise reform will treat like services alike, and all competitors should be allowed to provide services under the same rules upon the effective date of the bill, without any legacy regulations that favor one potential provider over another. There shouldn’t be any kind of a market penetration test that a new provider must meet before the incumbent cable provider is freed from the old regime.

Cable is making enormous investments in upgrading and expanding their networks, and in every state where video franchise reform has been accomplished; the traditional telecom companies have announced and begun huge new investments in those states. Companies invest where they have the best opportunity for a return, so they invest where they have the most immediate access to new customers.

When Florida does away with the local video franchise system, there will be an almost immediate increase in telecom investment in the state, creating high-paying jobs where workers will learn new skills designing, installing, and maintaining new broadband networks.

How long should Florida residents have to wait to gain similar benefits? The economic benefits of reform will be almost immediate, and therefore there are real costs associated with delay.

Local Control is Not Sacred
Much is being said about the supposed importance of local control. But the local franchise system is not a sacred thing. It is not in the Constitution. It was not handed down to us by the Founding Fathers. It is a specific system designed for a specific purpose that no longer exists. The local franchise system was designed for the awarding and controlling of a single local video provider. But now technology offers consumers competition and choice. Why would we keep an outdated regulatory system when its purpose no longer exists? Because it is so precious to us? Because it loves us?

We don’t have local control of most industries, other than their requirements to comply with local ordinances. Why should video delivery be any different?

You would think from listening to some people that doing away with the local franchise system is like doing away with a beloved aunt or uncle. And it’s not like consumers will be harmed without the all-protective beneficience of the local franchise authority. Remember, local government doesn’t go away when you move to a statewide video franchise. They just get out of the way.

The best consumer protection against abuse by a company is another company. Competition, not government control, provides consumers a choice, and an exit, if they don’t like their current deal.

The local video franchise system is an anachronism—a relic of the bad old days when services were provided by a single provider, highly regulated by local governments. Those were the bad old days. They are being driven away right now, by technology, and the only thing that threatens to keep the bad old days around is the inaction of policymakers.

When you remove the local franchise barrier to broadband competition, your constituents will benefit from greater competition, which means new product offerings and lower prices. They will get new jobs that will be created and the new economic opportunities that come along with broadband technology.

It should be a compelling policy priority for policymakers to do everything within reason to ensure the most rapid rollout of broadband technology possible. And today and in the coming weeks you have an opportunity to take a giant step in that direction by removing a major barrier to broadband rollout: the outdated system of local franchises. Texas and Indiana and Virginia and other states have already done so. The question is whether Florida will also grasp the opportunity.

I commend the Committee for taking up this enormous opportunity, I urge you to move forward and lower the local barriers to broadband rollout, and I will happily answer any questions you might have.


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